BILL ANALYSIS Ó
SB 292
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Date of Hearing: June 24, 2015
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
SB
292 (Pan) - As Amended April 21, 2015
SENATE VOTE: 25-10
SUBJECT: Public employee retirement: contributions.
SUMMARY: Specifies that the requirement for employees subject
to the California Public Employees' Pension Reform Act of 2013
(PEPRA) to pay 50% of the actuarial normal cost of their pension
benefits does not apply in specific cities and one county in
which voter-approved tax levies were enacted prior to July 1,
1978 for the purpose of paying pension costs.
EXISTING LAW:
1)Requires, under PEPRA, that new public employees hired after
January 1, 2013, pay at least 50% of the actuarial normal cost
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of funding their pension benefits, as specified, and prohibits
an employer from paying any of the required employee
contribution.
2)Exclude the University of California and charter cities and
counties that do not participate in a retirement system
governed by state statute from the PEPRA requirements.
3)Limits, under the state Constitution (Proposition 13, 1978)
property tax rates to 1% of the purchase price of the property
with specified adjustments.
4)Exempts from Proposition 13's 1% property rate limit a
property tax rate approved by voters prior to July 1, 1978,
for the purpose of paying the pension costs of the city or
county.
FISCAL EFFECT: Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS: Proposition 13 limited property taxes to 1% of the
purchase price of the property. However, the 1% limit on
property tax rates did not apply to special assessments used to
pay for indebtedness approved by voters before July 1, 1978. In
1982, the Supreme Court ruled in Carman v. Alvord that
extraordinary tax rates approved by voters before July 1, 1978
to fund employee pension systems are valid exemptions under
Proposition 13. These levies vary by city, range from 0.05% to
0.45%, and are levied in addition to the 1% general property tax
rate.
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In 1983, the Legislature enacted through AB 377 (Roos), Chapter
491, Statutes of 1983, a moratorium on property tax rates for
indebtedness other than bonds. This moratorium was made
permanent in 1985 through the passage of AB 13 (Roos), Chapter
112, Statutes of 1985. AB 13 also froze voter-approved
extraordinary tax rates for pensions at their 1982-83 percentage
levels. The extraordinary rates are frozen as a specific
percentage of total tax revenues; therefore, if total property
values grow over time, the total dollar amount of the
extraordinary tax revenues increases in tandem, even though the
rate does not increase.
The cities and county with extraordinary tax rates for pensions
that are also subject to PEPRA are as follows: Albany, Alameda,
Bell, Berkeley, Cloverdale, Coalinga, Compton, El Monte,
Huntington Beach, Huntington Park, Inglewood, Lynwood, Maywood,
Monrovia, Montebello, Monterey Park, Oakland, Oxnard, Richmond,
San Fernando, San Gabriel, Watsonville, and Santa Clara County.
In some of the cities with extraordinary tax rates for pensions,
the pension costs covered are for the city's safety employees
only - primarily police and fire personnel. Both employer and
employee contributions have traditionally been paid by proceeds
from the extraordinary tax levies.
Two cities - Los Angeles and Fresno - do not contract with a
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retirement system governed by state stutute and instead maintain
their own independent retirement systems. These cities are
independent charter cities that maintain independent retirement
systems and are exempt from PEPRA. They can, therefore,
continue paying their retirement obligations using revenue
generated by their respective levies.
The Peace Officers Research Association of California (PORAC),
in support of the measure states, "SB 292 clarifies an issue
that came to PORAC's attention after the passage of California's
pension reform legislation, the California Public Employees'
Pension Reform Act (PEPRA), took effect on January 1, 2013. A
section in the PEPRA calls for all new employees, and by 2018
most current employees, to contribute 50% of their "normal
cost". Normal cost is the basic cost of providing an
employee's future retirement benefit, not including unfunded
liabilities or surpluses. The issue that has come to our
attention centers around approximately two dozen cities and one
county whose voters approved a tax to fund their local
retirement obligations. Some of these pension initiatives were
approved by voters as early as the 1920's. The pension levies
pay for both the employer and employee contributions out of
their respective funds, thereby allowing that city or county's
general fund to be used in other areas important to that
jurisdiction.
"If these local agencies are to subject to the PEPRA rule on
employee contributions, the impact will hit those agencies'
general fund and could potentially result in a serious loss of
employees due to the immediate increased cost. Also, it will
truly impact recruitment for those entities due to the higher
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contribution rates that would be required from their general
fund."
"The Governor's stated intent for the passage of PEPRA was in
large part to save employer cost for increasing pension
obligations. Unfortunately, the PEPRA section mandating
increased employee contributions will have the opposition effect
for these cities and county impacted by Senate Bill 292."
According to the California Professional Firefighters, also in
support, "Since PEPRA, ambiguity now exists as to whether these
employers may use this voter-approved tax revenue to pay all of
their retirement obligations, including the employee share.
Consequently, these few jurisdictions are now forced to backfill
the cost of their retirement obligations using other revenue
sources. Additionally, the provisions of PEPRA as currently
interpreted, present a conflict with the will of the voters in
enacting these pension levies many decades ago. Finally, this
conflict presents a new, unexpected strain on a local agency's
general fund in having to find other ways to meet its
requirements, as outlined in their various collective bargaining
agreements."
The City of Oxnard is opposed to the bill, stating, "The 1982
Supreme Court decision in Carman v. Alvord validated the
override of property tax limitations to pay the costs of
pensions obligations approved by the voters prior to the
adoption of Proposition 13 in 1978. Later court rulings and
legislation, however, have capped the amount of the property tax
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pension override. The City of Oxnard is now at that cap.
Public safety pension benefits in Oxnard were increased after
1978, and the pension contribution associated with that increase
cannot be paid through the override. Further, the property tax
override rate the City can charge is capped at the rate imposed
in fiscal years 1982-83 and 1983-84."
"As a result of those limitations, the property tax override
cannot cover the full costs of the current level of Oxnard
public safety pension benefits. The proposed Oxnard City Budget
for fiscal year 2015-16 projects that the City's General Fund
will have to cover several million dollars in public safety
pension costs. Thus, if these new employees are exempted from
the 50 percent employee contribution requirement of PEPRA, the
costs for the pension contribution no longer required by the
employee would place an additional burden upon the City's
General Fund."
The opponents conclude, "Oxnard is currently facing huge budget
shortfalls and is struggling to meet the obligations on the
City's general fund. SB 292 would exacerbate the financial
situation which is already at crisis levels in Oxnard."
The Committee is informed that the author will be offering
amendments in Committee that limit the exemption provided in the
bill to apply only to the prohibition that an employer may not
pay any of the required employee contribution. Additionally,
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the amendments will clarify that the exemption only applies to
those employees whose pension benefits were covered by the
voter-approved tax levies.
REGISTERED SUPPORT / OPPOSITION:
Support
California Professional Firefighters (Co-Sponsor)
Peace Officers Research Association of California (Co-Sponsor)
Oxnard Firefighters Association, Local 1684
Opposition
City of Oxnard
Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957
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